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Anonymous shell companies rising

Why organizations should be concerned about this growing threat

May/June 2018

ByRyan C. Hubbs, CFE, CIA, CCEP

Criminals have learned, through trial and error, that anonymous shell companies can pass scrutiny. Authorities and entities don’t question them, the fraudsters blend in and they don’t appear to be risky. They represent the next big sale, the new low-cost supplier or the helpful business agent. And organizations are eager to work with them. It’s time to start reversing this trend.

In 2014, Mt. Gox, the top bitcoin exchange at the time, collapsed because scores of customers found they couldn’t withdraw funds. Why? Because hackers had pilfered 650,000 bitcoins, then worth 4.5 billion pounds. Now, according to a BBC article by Geoff White, investigators say almost half of the stolen coins ended up at the rival exchange BTC-e, supposedly run by a British company called Always Efficient LLP.

According to the BBC, Duncan Hames, director of policy for Transparency International (TI), said Always Efficient is likely a shell company.

“People laundering money will set up a network of companies to create layers between the original crime and their attempts to then integrate the proceeds of their crime into the economy,” he said. “They simply enable a series of transactions to take place to create this distance and to obsure the trails of the proceeds of crime.” (See
UK company linked to laundered Bitcoin billions, by Geoff White, March 7, BBC News.)

“Fraud is inherently hidden.” This has been a primary lesson for anti-fraud professionals since the inception of the ACFE. The ACFE founders, faculty and members have said it countless times. The message is simple: Concealment is a primary tool of a fraudster. Without concealment, frauds would be easier to identify, and the risk of getting caught would be elevated. Therefore, a search for and awareness of concealment techniques must be components in every fraud examination. The better we’re at identifying concealment red flags, the better we’ll become at unravelling complex fraud schemes.

We see concealment all the time. From false documents to forged signatures, doctored emails to destroyed evidence — fraudsters are always looking for ways to make their frauds appear normal, unassuming and routine.

Fraudsters have primarily focused these time-tested techniques to conceal their acts but with less emphasis on disguising their identities. But if they could also become anonymous, how large and complex could they make their fraud schemes? We have our answer in the ever-increasing number of global cases, prosecutions and regulatory penalties involving shell companies. The anonymous shell company has become criminals’ premier vehicle of choice when they conceal frauds and identities.

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